Here is why Volkswagen is #theNextBigThing

As the situation stands today, Toyota is the leader of the global automotive market. General Motors comes second and Volkswagen is third in the overall rankings.

So for a layman Toyota is the leader for all things automotive. But, as is with these things, that’s not the full picture because the devil lies in the details.

You see, a vital part of being a leader is to have followers. Sadly, no automaker is following Toyota or GM for that matter. Everyone wants to do what Volkswagen is doing and for very good reason.

Volkswagen’s steady march towards the numero uno position has been one of the most strategic moves we have seen in recent times. Three years back, Volkswagen announced that it has plans to become the number one automaker in the world. The German automaker predicted that it will achieve its target in 2018 and so far the progress has been strong and steady.

It is almost certain that Volkswagen will dethrone GM next year because it came very close in 2012. GM does not have any concrete strategy for the future because it is still recovering from its bankruptcy. Toyota may be considerably ahead of Volkswagen right now but the Japanese automaker is losing steam rapidly. In a survey conducted by KPMG, 81 per cent of car industry executives expected VW to gain the top position as early as 2016.

So what has Volkswagen done right so far? Here is our analysis –

Strategy 2018

The whole saga began in 2007 when CEO Dr. Martin Winterkorn took charge of Volkswagen. He drew up plans to make Volkswagen the most dominant force in the automotive sector. Together with Ulrich Hackenberg, Volkswagen AG’s development leader, Winterkorn laid the foundation of Strategy 2018.

Strategy 2018 is a €50bn plan to systematically dethrone GM and Toyota from their fortress. The strategy is a diverse mix of products, markets, brands, production techniques and manufacturing operations across the globe.

The strategy has been so successful that Volkswagen has started work on Strategy 2022.

Platform sharing

This is perhaps the biggest weapon in Volkswagen’s arsenal. While platform sharing is not a new concept in the automotive industry, Volkswagen’s ‘mega-platform’ concept is definitely unique.

The MQB platform, a brain child of Ulrich Hackenberg, is essentially a 70 billion dollar bet that will either successfully make or completely break Volkswagen.

The idea is to use one modular platform across different brands and different vehicles to promote standardization of manufacturing process. This will lead to better purchasing power, lower manufacturing costs, flexible production cycles and increased affordability for the customers.

Almost all cars from the VW Group portfolio will be based on the MQB platform in the future. There will be 60% standardization across all VW brands by 2018.

It is indeed a risky bet because if one part fails in any car, VW is potentially looking at the largest recall in history. But the benefits far outweigh the risks.

China focus

It was indeed far-sightedness of VW to establish its China operations almost 30 years ago when China was still struggling with poverty.

As the things stand now, China is the second largest auto market in the world and Volkswagen has definitely secured the early mover advantage.

Being the leader in the Chinese market has not only helped Volkswagen to boost its top margin but also to mitigate the slowdown of the European markets. Where most major European manufacturers such as Fiat and PSA are struggling to sell cars in the European markets, Volkswagen is not worried about the market at all.

In fact, Volkswagen is on a expansion spree and plans to add 10 additional manufacturing facilities in the coming years. VW is still focused on China where it plans to boost output by 60 percent by 2018 and build 7 new factories.

Volkswagen has also learned from its past achievements. Hence, the German automaker now wants to aggressively focus on other emerging markets such as Brazil, India and Russia. As these three markets are value-driven, Volkswagen plans to create a new ultra cost range of cars specifically for these markets.

Premium approach

Volkswagen has understood the value of ‘Premium’ badges. A simple analysis of the Volkswagen’s sales and profits for 2012 tells us that most of Volkswagen’s profit is coming from premium brands such as Porsche and Audi.

Let me explain –

Brand Volkswagen sold 5.7 million cars and made a profit of £3.1 billion. So the profit per car stood at £550. Audi sold 1.5 million cars and made profits of £4.7 billion, so the a profit per car stood at £3,000. But is there such a big difference between let’s say a VW Passat and Audi A4? Not really.

Both cars are based on the same platform and deliver more or less the same performance/features/comforts. What you are really paying for is ‘the badge’.

Volkswagen understands that people like to pay more for premium products. Thus, it is pushing Audi to dethrone BMW to become the number one brand in the luxury car market. Volkswagen is also pushing Skoda and Seat further up the value chain so even they can boost the profitability of the group. While Skoda has shown signs of a promising future with launches such as the Yeti and the Superb, the future of the Seat brand is a big worry for VW.

Massive expansion plans

Ask a stock market trader and he will tell you “When the market falls, you buy”. Volkswagen is approaching the current economic gloom with a similar strategy.

As most automakers curtail their spending and brace themselves for an uncertain future, Volkswagen is on a spending spree. Volkswagen has plans to invest 50 billion euros in the next three years in developing new vehicles, inventing new technologies, building new factories and even buying new brands.

Quick Mover

Although Volkswagen is following Strategy 2018 quite religiously, the German automaker has shown excellent level of flexibility in its plans. When Nissan decided to revive the Datsun brand to tap the demand for low cost cars in emerging economies, Volkswagen very swiftly responded to the challenge. Hardly any automaker has shown such receptiveness and flexibility to such future demand.

Future ready products

At the end of the day, Volkswagen is a car company and the only way it will survive is if it builds better cars.

Volkswagen is heavily investing in developing new cars for potential customers. Over 60 new models based on the MQB architecture will see the light of the day by the end of the decade.

Volkswagen has also realized that future cars need to eco-friendly. Thus, the VW group is heavily investing in hybrids, EVs and fuel cells to make sure that the new vehicles are future ready.

The German automaker has also realized that in the future, people will demand more crossovers, coupes and other such exciting body shapes. Thus, heavy investment is directed towards developing new and unique body styles that will keep the consumers visiting the VW showrooms.

22 thoughts on “Here is why Volkswagen is #theNextBigThing”

chronussays:

March 26, 2013

It will be interesting to see how long VW will be able to keep so many brands under its belt successfully… GM’s debacle is a reminder. Ofcourse, the situation, culture and practices are different. I am surprised that VW would want to maintain/increase number of brands in its portfolio… 🙂

Its going to be harder to maintain brand differenciation as the lower brands within its umbrella move upmarket..

Seems like a PR exercise kind of post. VW want to be world’s No. 1 carmaker with the shockingly inferior TDI engines they have in India which consume engine oil by the time their next service is due. Their diesel engines which are plonked in cars costing upto some 1 crore rupees sound more gruff & noisy than a Fiat MultiJet or a Renault/Nissan K9K. Their so called game changer MQB flexible platform concept has been developed & used much earlier by carmakers like Fiat(A178 world car project) & last but not the least with this kind of crazy platform sharing the exclusivity of the different brands that they own will diminish. Imagine a lambo with a buggati or a Porsche platform..that would be the last thing petrolheads would want

Hi Sunny, The Audi R10 Le Mans, and the XL1 are just two of the record-setting diesel offerings from the VW Group, and both are at polar ends in terms of their proposition. I do not know of such diverse capability from another OE ). VW sells more diesel engines in passnger cars than any other brand. You may have a problem, but the numbers are not on your side ). ‘Synergy’, an oft used but rarely applied term, is the concept behind the MQB. All brands have been since decades sharing parts, but few have achieved the extent of modularity as the MQB – this is not about just sharing components, but rather a more evolved concept of sharing whole structures that reduce part and system complexity. It is not about, for example, sharing a music system, but about applying the whole electronic architecture to the vehicle’s databus. Lastly, and i hope that i have in no way offended your views, as long as optics, haptics and dyamics are significantly different, then a multi-brand approach with shared engineering capabilities makes for a sustainable business case with each business unit delivering a unique product experience to the customer.

Numbers may not be on my side but hard facts are which I guess I’ve already mentioned. W.R.T to their diesel tech, if it was so superior then the Suzuki-Vw fallout would have never happened. They may have the Le mans R10 & what not but those “record setting diesel offerings” dont trickle down to their mass market cars. I don’t know of any other OEM which creates records in a race or with a concept but the products which it sells are poorly engineered w.r.t their diesel powertrains.

I am well aware of what platform sharing & flexible platforms are & that’s why I mentioned the A178 of Fiat which was developed way back in the late 1990s. That single platform spawned a hatch, sedan, station wagon & a couple of UVs. If 14 years down the line VW is developing a flexible platform then there is nothing to boast about in this. And apart from all this too what does Vw has under its belt which shows or displays its engineering prowess? TSi engines? There are better petrol techs like the MultiAir, DSG gearbox? It’s developed by Borg Warner, TDI engines? A lot has been said about this. Perhaps the only significant technology which they can claim to be their own is Audi’s quattro. Nothing else

And thats exactly my point, if brands like Lamborghini, Porsche etc. now means all about making a business case then I am afraid they’re going to ruin everything with platfroms & parts being shared between brands which essentially are poles apart. Even if the platform is same & the optics, haptics & dynamics are different across different brands, it would still be a far cry from the concept of developing different cars from scratch for different brands.

Amarsays:

March 26, 2013

Hi Sunny,

So it seems that your reason to evaluate an engine is based purely on engine noise suppression! You are right with your evaluation, though in an absolutely narrow and – forgive my saying so – in a very incomplete and inaccurate format.

VW Group cars, like other, have an oil change period of about 15000kms (in India). And yes, they do consume more in the run-in period, but that is well stated in the owners manual too. It is not a defect but a requisite adjustment. Do you know the electical consumption of car HVAC units in the market? Find out, and let me tell you you will be surprised at the variations among brands for similar tonnage units. But since you do not know, you do not complaint… but simply pay the costs in fuel consumption.

Have you driven or read/spoken of/to people who have driven these engines? Which paramters would you like me to elaborate on – other than noise – which you have made ample noise of ). Race technology has a trickle effect in production vehicles, so naturally what was on tracks in the past is in your standard model today. Examples are a aplenty for the curious and self-initiated.

A polar illustration – BMW shares parts with Rolls Royce (especially the Ghost, which is common knowledge), however the Ghost has gone on to become the largest selling model in history. Why? Because the sweet price (as compared to the Phantom) draws in the people… logical. And this ‘joy’ comes from platform sharing. Though frankly i am not aware the extent to which it is shared.

The FIAT plaform was restricted to one class/segment of vehicles. The MQB can be applied across segments, and obviously bodystyles.

Well to have a healthy debate or even an argument you should stop sounding as a VW fanboy(though you are one). And I have not evaluated VW TDi engine based only on noise suppression. If that was the case then I would have never mentioned its single biggest flaw(oil consumption). A modern, thoroughly well engineered engine should never consume engine oil, not in the run-in period & not even thereafter so no one is going to buy the “requisite adjustment” argument. Whatever the TDi engine family does, other engines do better. Be it performance, fuel economy, reliability, longevity, NVH etc. Most oilburners on sale in India are far better engineered than the VW Tdi be it Hyundai(Detroit Diesel Alliosn’s) U2, Fiat MultiJet/DDiS,QuadraJet/Smartech, Renault/Nissan K9K, VM Motori’s 2.0 in the Cruze etc.

Definitely race technology comes down to street legal cars like it has been the case for several years but at one end Audi is winning Le Mans with their “record setting diesel offering” & at the other no manufacturer is interested in VW’s diesel tech. Suzuki never wanted to ditch the MultiJet for the TDi engine.

Both the MultiJet & K9K engines have found takers out of their group companies but no one except vw group brands is interested to use that tdi engine.

A hatch, sedan, station wagon & a UV are not ‘one’ segment of vehicles. The only great thing about VWs mqb is that they have invested millions of dollars in PR exercises & advertisements to promote a concept which essentially has been developed, tried & tested several years ago.

Amarsays:

March 28, 2013

Hi Sunny,

What has being ‘fan boy’ got to do with facts? I have attempted to lay the facts as they are. If you do not like or cannot understand the facts, then fine.

Avoid getting personal and stay on the topic.

Your evidently rouge comments, henceforth, dissuade me to further delve on this topic with you.

Hope the light shines upon you someday. Have a nice day ).

Amar

Sunnysays:

March 28, 2013

Could not reply to your latest comment as there is no provision but nevertheless it was you who was being personal & not me. One has the ability to understand & believe true facts & not just random, assumptive statements in the name of facts & I seriously wish that the wisdom light shines on you sooner than later.

thissays:

March 25, 2013

“But is there such a big difference between let’s say a VW Passat and Audi A4? Not really. Both cars are based on the same platform”

VW Passat and Audi A4 share some engins, but they are definitely not based on the same platform. Passat = transversal engin A4 = longitudinal engin Drive it and you feel the difference. If not, you don’t understand anything about driving.

Yes, they are different to drive, but the core hardware is the same. The A4’s is a driver’s car, while the Passat has a very comfortable rear seat. What we meant to say is from the parts inventory manager’s perspective, both share a lot in common.

That’s the point: you are wrong. The platform is core hardware, and those platforms are totally different.

Passat’s platform = called PQ35 (a longer version of the Golf 5) A4’s platforme = called LMB, introduced by the A5

Some engins and gearboxes are close (but not identical), the whole rest is different.

Amarsays:

March 25, 2013

It would be better to pass comments based on facts that your off-the-cuff personal ‘expert’ise. Please can you tell us what is your estimation for the value of parts shared between an A4 and Passat?

Without getting into the details, let me assure you that the platform architecture primarily, for chassis, exterior, interiors and electronics are appreciably different between the A4 and Passat. Moresoover, from a customer’s viewpoint, the optics, haptics and dynamics are so different between the two products, that the brand is able to successfully leverage a premium.

Hi Amar, I’m no expert, I learned something from you today. Thank you for the information, please feel free to share more details so that we understand this a little better.

Amarsays:

March 25, 2013

Sorry for my arrogance in the past mail. It just pi$$es me off when i hear of random uninformed statements – which even mainstream media is all about. As long as the statement has an angle of sensationalism to it, the facts matter not much. Audi and VW platforms will develop independently of each other by adopting the MLB and MQB structures respectively. Note that not all Audis have the MLB for example the A1 whas the aging but yet relevant PQ module and the upcoming A3 gets the MQB – the A4 stays with MLB. Let me just for example mention about the Chassis. Both will use separate ‘pan’ and ‘shell’ forms. The axles though similar vary due to track dimensions and dynamic loading. This is just the basic. Furthermore, the dampers are of a different calibration to allow for a higher level of electronic adaptation… Shrawan, you have a neat up-to-date website here. Hope you introduce a technical section so that these topics can be discussed in detail without diverting away from the news topic. Plus, we all can learn a lot from each others’ experiences.

Nikhilsays:

March 26, 2013

I think the article was for a layman and from that perspective, what is stated in the article is reasonably accurate.

I mean the layman is not going to know the pan and shell of a chassis as well as the track dimensions and dynamic loading etc. Indeed, its good knowledge but maybe for hardcore mechanical engineers, not for a layman.

Usually when we say sharing a common platform symbolizes similar wheelbase as well as engines (which is true between the A4 and the current Passat). Infact the Passat uses the higher tune Diesel engine. The major differences that exists in an everyday car and the premium car is between the materials used right from the structural elements. For example, I know for a fact from a steel mill employee in the US who is a supplier for VW that the passat uses 4 different types of steel including compacted graphite in the B pillar for passing the crash test norms whereas the A4 uses aluminum and hi-tensile steel for achieving even higher crashworthy ratings. Same goes for interior.

They say sooner or later your passion finds you. Sometime in late 2009, I started writing for IAB and ever since then it has been a roller coaster ride for me. An amazing experience that has taught me a lot, taken me to new places, driven some great cars and met some amazing people. When you don't find me on IAB (very rarely), you will find me either at a coffee shop or an eatery or at the nearest gadget store.Hope you enjoy IAB as much as we do!